A new federal tax policy eliminates the need for lessors to pay immediate taxes on down payments consumers make on leased vehicles.
The policy, Revenue Procedure 2002-36, allows the down payment, also known as the capital cost reduction, to be spread over the term of the lease. It took effect in May and applies to tax years ending on or after Dec. 31.
In the past, the Internal Revenue Service required leasing companies to recognize immediately the down payment as income.
"If a customer paid $2,000 down on a $30,000 lease for five years, that $2,000 was extra income today," said Paul Doyle, a Pasadena, Calif., accountant who has 50 leasing companies as clients and advises the National Vehicle Leasing Association. "Now the $2,000 is spread over five years."
The new ruling gives leasing companies automatic approval if they apply to the IRS to switch from treating the capital cost reduction as up-front income to depreciating it over the lease term.